Is Cheap Food Really Good For America?

With people spending less money on food, there's more to go around to spur economic growth

Food is as cheap now as it's ever been. Is that a good thing? Today, I'll make the argument that without cheap food, our economy could never have flourished as it has over the past century.

Where once we spent over 20% of our disposable income on food for consumption at home, we now spend just under 6%. Shifts like that reverberate far beyond our food budgets, and create all sorts of positive benefits in other sectors of our economy.

Feeding a lot more mouths in AmericaAs we talked about yesterday , advances in agricultural machinery, fertilizers, and genetically modified plants have made food shortages a thing of the past.

These three forces have combined to make farming far more efficient: in 1930, the average farmer could feed about 10 people. By 1990, one farmer's work could feed ten-fold the number of people. When you consider the nation's population has grown from 123 million to 315 million since 1930, it's a good thing these technologies were in place -- otherwise, there's no way we could feed 315 million mouths.

A boon to the economyBut beyond improved access to food, there are several other economic benefits that come with readily available food. First and foremost, when we aren't spending such a large percentage of our income on food, there are lots of other places that we can spend it.

As The Atlantic's Derek Thompson showed in a 2012 article , the drastic difference in food spending allowed for other sectors of the economy to blossom.

Source: The Atlantic

First and foremost among those sectors was housing. If the Great Recession has taught us anything, it's that weakness in the housing sector can wreak havoc on our economy. As folks have been able to spend less and less money on food, they've been able to put that money toward building or buying a house that best meets their needs.

The other area that has undeniably benefited from this trend is the automotive industry. If we were still spending near a fifth of our money on food, there's no way that we could possibly afford to fork over such large portions of our paychecks every month to pay for a car or a truck.

But the economic benefits of cheaper food go beyond even these two areas. On a broader level, all of the cash freed up by cheaper food helps fund innovation. From 3-D printing to the newest biomedical breakthroughs, it's hard to imagine our populace having the time or resources to realize such accomplishments while having to constantly worry about food security.

The companies benefiting from this trendAt the turn of the century, companies making farming machinery were the biggest beneficiaries of the cheaper-food trend. After that came the fertilizer companies.

But even though these two will continue to be important players in the food field for decades to come, the companies that can promise plentiful food through genetic engineering now attract the most attention. No name is more synonymous with genetically modified organisms (GMOs) than Monsanto(NYSE:MON), but DuPont (NYSE:DD) and Dow Chemical (NYSE:DOW) are also major players in the field.

By making GMO seeds in the laboratory that are resistant to herbicides and pesticides sprayed on plants, farmers hope to have the ability to realize outsized yields without having to worry about insects or bacteria ruining their crops.

These three players are hoping to quell fears over GMOs as well, having helpedto fund a website -- www.GMOanswers.com -- that touts the process as safe and beneficial. They have also poured millions of dollars into the state of Washington to help influence voting on the state's GMO labeling laws.

Though you'll see tomorrow that I don't actually believe cheap food is as great for America as I make it seem above, itdoes have some economically beneficial consequences that are undeniable

Author

Brian Stoffel has been a Fool since 2008, and a financial journalist for the Motley Fool since 2010. He tends to follow the investment strategies of Fool-founder David Gardner, looking for the most innovative companies driving positive change for the future. Follow @TMFStoffel